When Purchasing Inventory on Account in a Perpetual Inventory System

question 53

Multiple Choice

When purchasing inventory on account in a perpetual inventory system, which of the following is TRUE?

• A)The journal entry would be exactly the same for all inventory costing methods.
• B)LIFO and FIFO inventory valuation methods require a debit to inventory while all others require a debit to purchases.
• C)GAAP does not allow inventory to be purchased on account.
• D)The average costing method requires a credit to inventory.

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Definitions:

Property

Assets or possessions that can be owned or controlled to produce value, including real (land and buildings) and personal (movable items) property.

Creditors

Entities or individuals to whom money or its equivalent is owed.

Third Party

A third party is an entity that is neither the principal nor the counterparty in a transaction, agreement, or legal case but may have an interest or be indirectly involved.

Guaranty Contract

A legal agreement wherein a guarantor agrees to fulfill the obligations of a debtor to a lender, should the debtor fail to do so.